Residence and the manovra

12/15/2011 - 02:52

There is a hugely important element to the manovra published yesterday. For people who took residence in Italy to get prima casa, but dont actually live here...From 2012 you will pay 7/1000 on the value of any property owned OUTSIDE ITaly. This applies to residents - so it might well be worth your while thinking about whether it is worth it having prima casa. For those of you thinking of buying taking prima casa is now so fraught with complications, it is worth paying the extra at atto for some peace of mind. Obviously the budget has yet to be voted on, but as of today its in there.


We bought a house in Italy last week.  After much mulling over before the signing decided to go down the route of seconda casa as whilst my husband and I will be living there permanently once it's finished I won't be a resident as I'll be coming back to the UK on a very regualr basis for work.  So paying 7/1000 of a property outside of Italy won't apply to us - but I'm curious as to how they'd know anyone had a property outside of italy and how they would know what the value was?

If you are an Italian fiscal resident when you file your annual return in Italy there is a special setion called the "quadro RW" and you have to indicate all the assets and investments you have abroad. So the information is provided by yourself, but only if you are a fiscal resident in Italy.

But if your hubbie is resident then it will apply to him even if you bought as a seconda casa as he will be tax resident here and need to complete a tax return here and there is a questions asking if you own property abroad (ie outside Italy).

You don't automatically have to complete a tax return however.  Depends on your work status.  As for not being resident, I assume you've already gathered that you'll need to spend 91 days (at midnight) of each year in the UK and maintain that average over 4 years to retain your British tax residency.  We even had to provide the dates of our travel to HMRC and in some cases they asked for our flight details to verify what we were claiming.  Now Italian tax residents, life is somewhat simpler - but more expensive!

Thanks Andy, I did know it was 91 days -I wasn't aware though of maintaining that as an average over 4 years.  I know it'll be 91 days and more for the first couple of years - then it's likely to be less so I'm assuming then I'll need to become an italian resident.  That really suprises me from HMRC I would have thought they'd have wanted people to pay tax.  I have a UK based limited company with UK clients so will need to keep the company in the UK.  All so complex.   New Years reolution is to sort this all out before we move which is likely to be Autumn 2012

In addition there is a new budget clause which means that if you have a business based in another country you will be expected to pay 0.1% of the capital in Italian tax from next year - though nobody quite know how this works yet.   If you spend 91 days in the UK you are tax resident, 183 days in ITaly, you are tax resident , and which leaves 92 days to be tax resident in another place - unless you spend it on a cruise I suppose - if you are legally tax resident in 2 countries simultaneously does it make the tax office computers melt? 

... is it not the case (despite the above), HMRC will still class you as UK tax resident if you still own a home in the UK and visit family there...? From what I understand, they have "guidelines" (91 days in 4 yrs) etc, but are NOT bound by these and they have never been tested in the courts and until they are, they will decide each case using these "guidelines" and their "judgement" .... :)

Steve, I'm not so sure about that.  Having a house and visiting family there has pretty much nothing to do with tax residency.  The two major factors in deciding tax residency are  'where you work' and 'where you are domiciled.'

Visit the HMRC website - unless things have changed, there is a 'tax category' for people who visit friends/ family regularly in the UK [not even owning property] - its all about having 'ties' with the UK - If you fall into that category, they'll tax you  [what they tax? - I'm not sure.  visit the website]   EDIT Just visited website - clear as mud - so talk to a UK tax expert

... wife worked for them for years and I was a civil servant for many, many years.... You get to know their spiel and read between the lines .... Basically as I read it, nothing is under legislation, therefore until someone challenges it, it is "their law". I would suggest, if it suits you, pay UK tax, else pay Italian and if either query it, then get help... With our lack of Italian I would much rather challenge HMRC (not for the 1st time I should add), should the need ever arise... Just as an aside and to highlight how complex this seems to be, we understand within the EU any private government pension (us) can ONLY be taxed at source and never by another EU country - reside there or not..... 

We spent a fair bit on cross-border tax specialist advice. It's not actually that difficult in reality and there appear to be a lot of HMRC rules there as a 'catch all' fall-back, but remember, what we're really interested in here is the tax treaty between UK & Italy and not necessarily all you read in the general areas of the HMRC website.  Every case is slightly different so it is well worth paying for the professional advice imo.

Re. the public pension, that's broadly correct - it's also what happens in my case.  However, if you're working in Italy then I believe that you must still declare your world-wide income, including the pension, but you'll receive a tax-credit for tax already paid.  You'll still pay the difference in Italy (as the tax liability is almost certainly higher) but I don't think there's a tax exemption in place for that kind of income.  I could be mistaken - I'm musing based on other circumstances that apply in my case.  Again, it's tax-treaty stuff.

As Ram says this is very significant for any person buying as "prima casa", thinking they will benefit from a tax reduction whereas in the long run they may pay more tax on their property abroad. The tax on overseas property will be 0,76% on the value of the property as stated in the purchase deed, or in the absence of this (not sure what that means - if you have lost the purchase deed?) on the market value, which could be far higher for British citizens given the rate UK house prices have risen in 20 years. To be declared and paid as from 2012 (for 2011). There is relief by way of credit if you have already paid property tax in the country where the property is, what tax would this be, council tax? Charlotte

It is entirely possible that I'm being dim, but I don't understand from reading these posts whether only an Italian resident who opted to buy a house as prima casa is liable to pay tax on any overseas property he owns, or whether anyone resident in Italy must declare and pay tax on overseas properties, regardless of whether they purchased their Italian property as prima or seconda casa. And does it apply to both an Italian who has a holiday home in Florida, for example, and a British person who owns a house in the UK?

As far as this tax on foreign properties goes, apparently Brussels have been persuaded to look at its legitimacy. There are two grounds put forward: firstly the suggestion that the proposals favour investment in Italian property over investment in foreign property, thus contravening capital movements EU laws, (personally I can't see this argument getting past the starting post), but the second position is slightly more iinteresting, and if it gets anywhere it is the sort of situation in which many forum members will find themselves. The reasoning is particular to foreigners, now resident in Italy, who retained a house in their native country (purchased prior to their arrival in Italy) which could be considered their 'prima casa' outside Italy. Again, my personal view is that this will pass Brussels scrutiny (if only because if anybody knows EU law inside out it is Monti). Anybody who is resident in Italy is considered tax resident, unless they can prove to the satisfaction of the tax authorites that they spend less than 182 days a year in Italy. Thus Italians with property abroad, just like British or Americans or Moldovans with property abroad will if resident in Italy be obliged to pay. The only allowable deduction is (in the case of the UK) council tax. As to the valuation of the house, the amount chosen above all else is the last registered transaction price. This is potentially mega unfair, if you bought your five bed Georgian in Chelsea in 1964 you'll be quids in, but the Moldovan badante who has a family home which has never been formally transacted will have to pay 0,76% of market value. The three bed semi in Manchester bought in 2007 will almost certainly set you back more than the Chelsea pad.  Things might get tweaked before December 2012, but I suspect this one is going to happen in a form close to the original proposal. By the way, it relates to any real estate - commercial or industrial as well as residential.        

I think logically, what you are suggesting as your second line of thinking makes sense in the EU. I'm not so sure for others (say Americans)? "The reasoning is particular to foreigners, now resident in Italy, who retained a house in their native country (purchased prior to their arrival in Italy) which could be considered their 'prima casa' outside Italy. Again, my personal view is that this will pass Brussels scrutiny (if only because if anybody knows EU law inside out it is Monti)." I suppose there could become an EU definition of prima casa? So anybody with more than one property anywhere in the EU, could only claim only one of them as their prima casa within/across the EU? This could take some time implementing ! S

I would have thought that America will probably get off lightly with regard to this tax as property prices are generally low (if you dont live in Manhattan) and property taxes incredibly high - certainly more than 0.07% of the property value.   With regard to the Monti proposal, the main problem is for those who bought in Italy using prima casa, with no intention of ever living here full time.  They saved a few bob at atto paying lower taxes and then thought they were sitting pretty.  Obviously there is the rub - and if I were one of the those I would seriously think about reneging on my resident status.  The new double tax jobby just signed by Cameron and Monti (and a few others) allows for much closer cooperation in checks and balances, and its just a matter of time before they will get caught - not by the Agenzia dell'entrate, but by HMG For those who actually are resident but have a bolt hole/prima casa in another country, then the tax applies.  If for some reason you cant prove your purchase price then it will be calculated on market price (how and by who?)  with offset provable taxes paid in the other country.   For most this wont be a problem,  it will become a headache only for those who are trying to shaft the system at both ends.  For Belvedere - the tax will apply to anyone who is resident in ITaly - ie, living there (according to their declaration) for more than 183 days a year and therefore fiscally resident in Italy.  It doesnt matter whether you are Italian or not, only that your residence in in Italy and all your tax affairs fall under Itlaian law. 

In reply to by Ram

Thanks, Ram. I did realise that the proposed tax applies to residents, whatever their nationality but I'm unsure whether it only applies if you purchased a property in Italy as prima casa. Would a resident who owns one (or more) houses in Italy bought as seconda casa and a house in the UK, for example, be taxed on the UK house? Presumably the UK house would have to be declared on that person's tax return whether the Italian property is prima or seconda casa?

The thing about the tax is not really connected to the prima casa - if you are a resident then thats the limiting factor.  Whether you chose to take advantage of the prima casa incentives is irrelevant in this case.  I bought seconda casa, but am resident in Italy - file my tax return here and so on - so the tax would apply to me if I had any property elsewhere. 

Can anyone tell me how this ruling affects dual citizens?  We are American citizens currently living in the USA  who recently got our Italian citizenship.  We are registered in A.I.R.E.  We plan on retiring to Italy in about 5 years and live there full-time.  In the meantime, we may purchase a house when we find what we are looking for.  If we claim prima casa, how would this affect us?